Policy reform and farmers' heterogeneous response: Measuring the income effects of corn price shocks

We measure the impacts of the corn price shocks caused by the corn-procurement policy reform on the incomes of corn producers of different scales in the respective supply response states, using a balanced panel dataset from household surveys from 2015 to 2016 in Heilongjiang province of China. The results from the specification accounting for the response heterogeneity show that the substantial fall in corn prices had a significant negative impact on the incomes of the large and medium farms that chose to reduce corn acreage and of the large farms that chose to abandon corn planting. In contrast, the results from the specification ignoring the response heterogeneity indicate that the corn price shocks had a significant negative impact on the incomes of all large corn-producing farms. The results confirm our proposition that the supply response state and the initial operation scale are responsible for whether a corn producer is hurt by a fall in corn prices. The findings suggest that it matters to take the response heterogeneity into account in correctly determining the differential effects of a price shock on farmers' incomes. [EconLit Citations: D31, Q12, Q18].